Iron ore is at risk of dipping below the US$50 per tonne mark, as growing stockpiles at Chinese ports indicate supply may again be well outstripping demand.
Miners had been enjoying the start of the year, which saw Chinese buyers boost their orders to drive the price of iron ore up nearly 20% in February, 8% in March and 23% in April.
Now the party seems to be over, however; prices have dipped roughly 23% so far in May.
A 62% grade tonne of iron ore was worth $52.70 as of May 24. That was down $3.00 a tonne compared to the price quoted on May 23, according to Thomson Reuters.
Iron ore inventories at Chinese ports went over the 100 million tonne mark last week, and at least one analysts predicts they will soar higher.
Ren Jiaojiao, an analyst from Maike Futures Co., reportedly spoke to Bloomberg on Tuesday.
“Seaborne supply is rising while the Chinese steel mills will reduce purchases,” Ren reportedly said.
“The run-up in April was fuelled partly by purchases from steel mills ramping up production to capture the exceptionally-high profit margin,” he continued.
But a renewed focus from regulators and markets has led to that profit margin “quickly contracting,” Ren reportedly explained, “so mills are adjusting to the new situation by depleting their raw material inventories first”.
“They will also adopt a hand-to-mouth strategy in purchases later because of anticipation of higher supply at the ports.”
Market analyst Citigroup is also said to be bearish on iron ore; Bloomberg citing a Tuesday report in which the firm said persistent oversupply from the top miners, along with growth from Gina Rinehart’s Roy Hill mine would continue to impact prices.
On top of this, weak steel prices will restrain output at Chinese mills, Citigroup is said to believe.
“Oversupply should extend into the rest of 2016,” Citigroup was quoted as saying. “Weaker steel prices should incentivise mills to decrease utilisation rates and maintain low iron ore inventories, putting pressures on Chinese iron ore imports.”